Home > Gosvenor London Ltd v Aygun Aluminium UK Ltd [2018] EWCA Civ 2695

Gosvenor London Ltd v Aygun Aluminium UK Ltd [2018] EWCA Civ 2695

7th December 2018

Gosvenor London Ltd v Aygun Aluminium UK Ltd [2018] EWCA Civ 2695

Background

Gosvenor was contracted to perform cladding works for Aygun. The project fell into delay and disputes arose. A subsequent adjudication determined that Aygun owed Gosvenor the sum of £553,958. Gosvenor later applied for summary judgment to enforce the adjudication and Aygun resisted on the basis of fraud. According to Aygun, a substantial proportion of the adjudication award was based on fraudulent invoices which did not reflect the actual value of the work done.

Fraser J, sitting in the TCC, held that the allegations of fraud could not resist the application for summary judgment. As Aygun had already known about the fraudulent invoices at the time, the issue should have been brought up during adjudication.

However, Fraser J did grant a stay of execution. Adding a new principle (g) to the existing categories in Wimbledon v Vago, he held that there was a real risk that the adjudication sum would be dissipated so that it would not be available to be repaid:

“(g) If the evidence demonstrates that there is a real risk that any judgment would go unsatisfied by reason of the claimant organising its financial affairs with the purpose of dissipating or disposing of the adjudication sum so that it would not be available to be repaid, then this would also justify the grant of a stay.”

The present case concerns Gosvenor’s appeal against Fraser J’s imposition of the stay. There were two grounds.

I. Principle

Gosvenor argued that Fraser J erred in formulating the new principle (g). The correct position was that evidence of alleged fraud which could have been raised as a defence in adjudication could not then be raised in support of an application for a stay (SG South Ltd v Kingshead Circencester LLP [2009] EWHC 2645)

II. Application of Principle

Second, that Fraser J was wrong to find that the evidence of alleged fraudulent invoices gave rise to an inference that Gosvenor’s financial affairs would be organised to dissipate any adjudication sum so as to leave any future judgment unsatisfied.

Decision

The Court of Appeal dismissed both grounds of Gosvenor’s appeal and upheld Fraser J’s stay of enforcement.

I. Principle

Coulson LJ, giving the judgment of the Court of Appeal, held that the court can grant a stay if principle (g) is satisfied regardless of the fact that the allegations of fraud were not included in the defence during adjudication.

In his words, at [33],this was because, “the assessment of the risk of dissipation will not have been undertaken before; such a risk will not have been an issue in the adjudication, which will have been concerned solely with whether or to what extent the payer was liable to the payee.”

Coulson LJ’s argument is that the adjudication was about the merits of the case and did not involve a consideration of the risks involved in dissipation. The absence or presence of evidence in relation to merit was immaterial to any later assessment for granting stay because the adjudication did not, and was not meant to determine that latter question.

As such, he stated at [34], ‘a court considering that question is therefore undertaking the exercise for the first time and when doing so, must consider all the relevant evidence, regardless of whether or not it had been raised in the adjudication.

Whilst Coulson LJ held that Akenhead J was correct to identify that there was a difference between an issue that could have been resolved at adjudication, and an issue that could only have been raised for the first time at enforcement, the dissipation of funds was not an issue which adjudication was directed towards. Or as he says in his own words, ‘the use of the evidence to support an application for a stay is for a difference purpose and does not amount to a collateral attack on the adjudicator’s decision.’

SG South v Kingshead was effectively distinguished on that basis. Fraser J was therefore entitled to formulate principle (g) in the form he did.

II. Application of Principle

It was further held that Fraser J acted within his discretion in determining that the evidence gave rise to a real risk that assets would be dissipated.

The correct test was the same as that of the freezing order jurisdiction and it was a reasonable view for Fraser J to conclude that the high hurdle was cleared.

This was because Gosvenor’s accounts showed a marked shift in the amount due to creditors from £27,455 owed to Gosvenor to £581,490 owed to creditors. This was solid evidence of the risk of dissipation because the amount owed essentially matched the adjudication award.

Comment

The decision of the Court of Appeal upholds Fraser J’s introduction of principle (g) to the existing principles that had been set out in Wimbledon Construction 2000 Ltd v Vago [2005] EWHC 1086 (TCC).

The immediate implication of this is it confirms that judges are entitled to grant a stay of execution where there is a real risk that assets will be dissipated before the substantive dispute is determined.

Further, the right to grant the stay was not fettered by the absence of supporting evidence during adjudication. This was so, even though on the facts, it was evident that Aygun had already known of Gosvenor’s fraudulent acts during the adjudication. Because an adjudication did not test the risk of dissipation, the raising of new evidence in relation to dissipation did not attack the adjudication decision.

It should, however, be noted that the evidence required to stay enforcement of adjudication under principle (g) required a high hurdle to clear. The test for principle (g), being equivalent to that of granting a freezing injunction, required solid evidence of a real risk of dissipation.

In practice then, it is unlikely that the introduction of principle (g) will fetter the enforcement of most adjudications. Nevertheless, this case, along with other recent decisions, such as Equitix v Bester Generacion UK Ltd [2018] EWHC 177 (TCC), highlight the willingness on the part of the TCC to stay enforcement of adjudications, thereby impeding cash flow, if there is a risk that repayment of the adjudication sum will not be possible.

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